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1953-54 Theatre Catalog, 11th Edition, Page 350 (312)

1953-54 Theatre Catalog, 11th Edition
1953-54 Theatre Catalog
1953-54 Theatre Catalog, 11th Edition, Page 350
Page 350

1953-54 Theatre Catalog, 11th Edition, Page 350

Exhibitor Tax Guide

Summary of What the Small Theatre Owner Who Does Not Have an Auditor Can and Can Not Do to Improve His Tax Position


The three main types of business organizations are the sole proprietor, the partnership, and the corporation. Each type has certain characteristiCS with respect to taxes, accounting, and legal phases. An examination of the advantages and disadvantages of each type may reveal that you should change your present organization.

The Sole Proprietor

The sole proprietor, or "one-man" organization has great freedom of action and can do anything not forbidden by law. He is not restricted by the objections of apartner, nor does he come under the numerous laws affecting corporations. However, his capital is usually limited and it is rarely possible for him to expand to any substantial size. Furthermore, his business assets may be seized for the settlement of his personal liabilities, (and vice versa), and his death will terminate the business immediately.

For tax purposes, the sole proprietor prepares Schedule C which shows his business operations and self-employment tax. This schedule is attached to the regular tax return, Form 1040.

The Partnership

The partnership form of organization consists of two or more individuals who have combined their capital and efforts for the purpose of making a profit. More capital is available, and the skill of more than one proprietor is employed; thus permitting greater expansion than is possible in the sole proprietorship. However, harmony does not always exist, and personalities sometimes endanger the existence of the enterprise. The services of a competent attorney should be engaged to prepare a written partnership agreement.

As in the case of a sole proprietor, business assets may be seized to satisfy a partneris personal debts, (and vice versa). The partnership is terminated by the death, insanity, or bankruptcy of one of the partners, unless the agreement authorizes its continuation to a later date.

The partnership does not pay an income tax, although it files an information return, Form 1065. Each partner pays a tax on his share of the partnership profit; whether the profit is withdrawn or not. For example, assume that A and B are partners dividing profits equally. If the profit is $30,000, each partner pays a tax on $15,000; even though each partner has drawn out less than his full share of the profit.

A postponement of tax payment can be obtained for partners if a new partnership is formed with a fiscal year which does not coincide with the calendar year.



If the partnership year runs from January lst to December 3lst, the tax is due 74 days later on March 15th. However, if the partnership year runs from February lst, 1952 to January 3lst, 1953, all the partnership profit is assumed to be earned in 1953, and the tax on each partneris share is not payable until March 15th, 1954, or thirteen and onehalf months later.

A further tax saving to a partnership is found in unemployment insurance expense. Partners are not looked upon as employees; therefore, there is no unemployment insurance computed on their drawings or profits.

BRIEF: In addition to being a showman, the operator of a theatre is also a businessman . . . with all the responsibilities and duties that go with running a business . . . One of the chief problems of the

small exhibitor who does not require the services of a regular auditor . . . is taxes . In order to supply some answers

and background knowledge in this com pl ex area of taxes . . . TH E A TRE CATALOG is presenting this thorough review of the basic business structures

. . . with their advantages and disadvantages . . . a summary of what to do in order to prepare your books for end-of-the-year tax purposes . . . and a complete outline of how to prepare the tax forms which apply (a the exhibitor.

Contributions paid by a partnership are not deductible for tax purposes, but each partner may deduct his proportionate share of such contributions on his personal return. The same is true of partnership capital losses not in excess of $1,000 per year above each partneris capital gains.

If the partnership shows a loss for the year, each partner's share of the loss can be off-set against his personal income from other sources.

Partners should consider the advisability of making a Hbuy-and-sell" agreement. Under this form of contract, each partner insures the life of the other partner. If one partner dies, the insurance proceeds are available to buy out his capital interest. In the absence of such an agreement, there may not be sufficient funds for that purpose, and the partnership will have to liquidate in order to satisfy the demands of the decedent's executor for settlement of the decedent's capital interest.

The fibuy-and-sellii agreement outlies the above steps and binds the surviving partner to buy out his deceased partner's interest. Failure to have such an agreement may result in the deceased partneris widow taking his place as a partner or selling the capital interest to someone not acceptable to the surviving partner.

The 1951 Tax Law approved, for tax purposes, family partnerships. Under Section 191, children of a sole proprietor may become partners using, as capital, gifts received from the parent provided that capital is a material factor in creating profits. This permits the splitting of profits among several members of the same family and keeps the tax computations in the lower brackets. However, the law distinguishes between a partnership interest obtained by gift or by other means and also whether or not capital is a material income-producing factor. Furthermore, the new partner cannot receive more profit than his proportionate share of the total capital, and the donor must be compensated for his services before profits are divided.

In all partnership questions, it is important that the services of an attorney or accountant, or both, be obtained.

The Corporation

A corporation is an artificial being created by state law and is separate and distinct from its owners. It, therefore, continues to exist regardless of changes of ownership. In addition, the owners are not personally liable for the corporations debts. These factors make the corporation a more attractive form of business organization than the partnership; although in other respects the latter may be the better form for you.

One of the tax advantages of the corporation is that an owner pays tax only on the dividends received (plus salary if employed by the corporation) and not on his proportionate share of the profits, as is the case of a partner. Furthermore, salaries paid to officers are deductible expenses in determining net profit, while partners' drawings are not deductible.

If a corporation owns stock in other corporations,only 15 percent of dividends received are taxed. A partnership pays tax on the entire dividend.

Officers of a corporation, as employees, participate in any profit-sharing or pension plans, and payments made to the plan are legitimate, deductible expenses. Partners are not employees of the partnership, and, therefore, do not participate.

If you now have a partnership which makes substantial profits, you may benefit by forming several corporations to take its place. Each corporation will then get the chief benefit of a small corporation, exemption from excess profits tax.

1953-54 Theatre Catalog, 11th Edition, Page 350